Sample Chapter

Chapter One

The Road to Serfdom is F. A. Hayek's most well-known book, but its origins
were decidedly inauspicious. It began as a memo to the director of the
London School of Economics, Sir William Beveridge, written by Hayek in the
early 1930s and disputing the then-popular claim that fascism represented
the dying gasp of a failed capitalist system. The memo grew into a
magazine article, and parts of it were supposed to be incorporated into a
much larger book, but during World War II he decided to bring it out
separately. Though Hayek had no problem getting Routledge to publish the
book in England, three American publishing houses rejected the manuscript
before the University of Chicago Press finally accepted it.

The book was written for a British audience, so the director of the Press,
Joseph Brandt, did not expect it to be a big seller in the States. Brandt
hoped to get the well-known New York Herald Tribune journalist and author
Walter Lippmann to write the foreword, noting in an internal memo that if
he did, it might sell between two and three thousand copies. Otherwise, he
estimated, it might sell nine hundred. Unfortunately, Lippmann was busy
with his own work and so turned him down, as did the 1940 Republican
presidential candidate Wendell Wilkie, whose 1943 book One World had been
a best-seller. John Chamberlain, the book review editor for the New York
Times, was ultimately recruited for the job.

One hopes for his sake that Brandt was not the sort who bet money on his
hunches. Since its first publication in 1944, the University of Chicago
Press estimates that more than 350,000 copies of The Road to Serfdom have
been sold. Routledge added many thousands more, but we do not know how
many exactly: that press was unable to come up with any reliable numbers.
There is also no good count on the number of copies that appeared in
translation, not least because a portion were samizdat copies produced and
distributed behind the Iron Curtain during the cold war.

Not everyone, of course, liked (or likes) the book. The intelligentsia,
particularly in the United States, greeted its publication with
condescension and, occasionally, vitriol. Then a diplomat in the British
Embassy in Washington, Isaiah Berlin wrote to a friend in April 1945 that
he was "still reading the awful Dr. Hayek." The economist Gardiner Means
did not have Berlin's fortitude; after reading 50 pages he reported to
William Benton of the Encyclopaedia Britannica that he "couldn't stomach
any more." The philosopher Rudolf Carnap, writing to Hayek's friend Karl
Popper, apparently could not muster even the stamina of Means: "I was
somewhat surprised to see your acknowledgement of von Hayek. I have not
read his book myself; it is much read and discussed in this country, but
praised mostly by the protagonists of free enterprise and unrestricted
capitalism, while all leftists regard him as a reactionary."

Those who, like Carnap, have not read Hayek but think that they already
know what he is all about should be prepared for some surprises. Those on
the left might preview their reading with a peek at chapter 3, where Hayek
expounds on some of the government intervention that he was prepared to
accept, at least in 1944. Those on the right might want to have a look at
his distinction between a liberal and a conservative in his 1956 foreword
to the American paperback edition. Both will be surprised by what they
find.

In this introduction I trace the origins of Hayek's little book, summoning
up the context in which it was produced and showing how it gradually came
to its final form. The reactions, both positive and negative, that
ultimately turned it into a cultural icon will then be documented. Because
it is a controversial work, I will comment upon some of the most
persistent criticisms that have been levied against it. Not all of these,
I argue, are warranted: Hayek's book may have been widely, but it was not
always carefully, read. In my conclusion I will reflect briefly on its
lasting messages.

Prelude: The British, Naziism, and Socialism

Friedrich A. Hayek, a young economist from Vienna, came to the London
School of Economics (LSE) in early 1931 to deliver four lectures on
monetary theory, later published as the book Prices and Production. The
topic was timely-Britain's economy, stagnant through the 1920s, had only
gotten worse with the onset of the depression-and the presentation was
erudite, if at times hard to follow, owing to Hayek's accent. On the basis
of the lectures Hayek was offered a visiting professorship that began in
the Michaelmas (fall) 1931 term, and a year later he was appointed to the
Tooke Chair of Economic Science and Statistics. He would remain at the LSE
until after the war.

The summer before Hayek arrived to teach was a traumatic one in Britain
and across Europe. In addition to the deepening economic depression,
financial crises on the continent led to a gold drain in Britain, and
ultimately to the collapse of the Labour government, the abandoning of the
gold standard, and, in autumn, the imposition of protectionist tariffs.
Hayek's entrance onto the London stage was itself accompanied by no little
controversy. In August 1931 he caused a stir with the publication of the
first half of a review of John Maynard Keynes's new book, A Treatise on
Money, which drew a heated reply from Keynes a few months later. His
battle with Keynes and, later, with Keynes's compatriot Piero Sraffa,
would occupy no small amount of Hayek's attention during the 1931-32
academic year.

By the following year, however, Hayek had secured his chair, and for his
inaugural lecture, delivered on March 1, 1933, he turned to a new subject.
He began with the following question: Why were economists, whose advice
was often so useful, increasingly regarded by the general public as out of
step with the times during the perilous years that had followed the last
war? To answer it Hayek drew upon intellectual history. He claimed that
public opinion was unduly influenced by an earlier generation of
economists who, by criticizing a theoretical approach to the social
sciences, had undermined the credibility of economic reasoning in general.
Once that had been accomplished, people felt free to propose all manner of
utopian solutions to the problem of the depression, solutions that any
serious study of economics would show were infeasible. Toward the end of
his talk Hayek cited the new enthusiasm for socialist planning in Britain
as an example of such misguided ideas. The economists who had paved the
way for these errors were members of the German Historical School,
advisors to Bismarck in the last decades of the nineteenth century.

Hayek's choice of the German Historical School economists was significant
on a number of levels. First, the German Historical School had before the
war been the chief rival of the Austrian School of Economics, of which
Hayek was a member. Next, though the German Historical School economists
were conservative imperialists, cheerleaders for a strong German Reich and
opponents of German social democracy, they also were the architects of
numerous social welfare reforms. Bismarck embraced these reforms while at
the same time repressing the socialists; indeed, the reforms were designed
at least in part to undermine the socialist position and thereby
strengthen the Empire. Hayek probably hoped that his audience would see
certain parallels to the present day. Only a month before Adolf Hitler,
who detested democracy and favored instead the reconstitution of another
(third) Reich, had become Chancellor of the Weimar Republic. Within days
he had convinced President Hindenburg to sign a decree prohibiting
meetings and publications that could endanger public security, a measure
aimed squarely at the communists and socialists. The morning before
Hayek's address the world had learned that the Reichstag building had been
set on fire and burned; the Nazis were quick to blame the act on the
communists and used it to justify further acts of repression. A half
century before, Bismarck had used an attempt on the Emperor's life to put
his own antisocialist laws in place.

After Hayek's speech the situation in Germany continued to deteriorate. In
March there were wholesale arrests of communists and harassment of the
social democratic leadership. Opposition newspapers were closed,
constitutional protections swept away, and a notorious "enabling law"
passed that gave Hitler virtually dictatorial powers. On April 1 a
nationwide boycott against German Jews was called, and later in the month
action against the trade unions began. In May students on university
campuses across Germany held book-burning celebrations, cleansing their
libraries of suspect volumes. One such event was staged in the Berlin
Opernplatz on May 10, 1933, and the martial songs and speeches of the
participants were broadcast live across Germany. It was a horrific spring.

Hayek's criticisms of socialism in his address were not well received. He
would later recall that, following the talk, "one of the more intelligent
students had the cheek to come to see me for the sole purpose of telling
me that, though hitherto admired by the students, I had wholly destroyed
my reputation by taking, in this lecture, a clearly anti-socialist
position." But even more disquieting for Hayek was the interpretation of
events in Germany that was emerging among the British intelligentsia.
Certain prominent members of the German industrial class had initially
supported Hitler's rise, and others had acquiesced in it. This, together
with the Nazi party's evident persecution of the left, led many in Britain
to see Naziism as either a capitalist-inspired movement or, alternatively
(if one were a Marxist, and believed that capitalism was doomed to
collapse), as a last-ditch attempt by the bourgeoisie to deny the
inexorable triumph of socialism. As Hayek recalled, his director at the
LSE was one of the ones propagating such an interpretation:

A very special situation arose in England, already in 1939, that people
were seriously believing that National Socialism was a capitalist
reaction against socialism. It's difficult to believe now, but the main
exponent whom I came across was Lord Beveridge. He was actually
convinced that these National Socialists and capitalists were reacting
against socialism. So I wrote a memorandum for Beveridge on this
subject, then turned it into a journal article....

In his reminiscence Hayek got the date wrong: given his reference in his
memorandum to the Berlin student demonstration, and given that it carries
the date "Spring 1933," he probably wrote it in May or early June of that
year. The memo, titled "Nazi-Socialism," is reproduced for the first time
in the appendix of this volume. In it, Hayek rebuts the standard account
with the claim that National Socialism is a "genuine socialist movement."
In support of this interpretation he notes its antagonism to liberalism,
its restrictive economic policy, the socialist background of some of its
leaders, and its antirationalism. The success of the Nazis was not, he
asserted, due to a reactionary desire on the part of the Germans to return
to the prewar order, but rather represented a culmination of antiliberal
tendencies that had grown since Bismarck's time. In short, socialism and
Naziism both grew out of the antiliberal soil that the German Historical
School economists had tended. He added the chilling warning that many
other countries were following, though at a distance, the same process of
development. Finally, Hayek contended that "the inherent logic of
collectivism makes it impossible to confine it to a limited sphere" and
hinted at how collective action must lead to coercion, but he did not
develop this key idea in any detail.

As Hayek noted in his reminiscence, he ultimately turned his 1933 memo
into a magazine article, published in April 1938, titled "Freedom and the
Economic System." The following year he came out with an expanded version
in the form of a public policy pamphlet. If one compares the two articles
one can trace an accretion of ideas that would later appear in The Road to
Serfdom. In the 1938 version, though he continued to stress the links
between fascism and socialism, Hayek began to expand on what he saw as the
fatal flaw of socialist planning-namely, that it "presupposes a much more
complete agreement on the relative importance of the different ends than
actually exists, and that, in consequence, in order to be able to plan,
the planning authority must impose upon the people that detailed code of
values which is lacking." He followed with a much fuller exposition of why
even democratic planning, if it were to be successfully carried out,
eventually requires the authorities to use a variety of means, from
propaganda to coercion, to implement the plan.

In the 1939 version still more ideas were added. Hayek there drew a
contrast between central planning and the planning of a general system of
rules that occurs under liberalism; he noted how the price system is a
mechanism for coordinating knowledge; and he made several observations
concerning economic policy under a liberal regime. All of these ideas
would be incorporated into The Road to Serfdom.

On the one hand, Hayek had developed some of his new arguments in the
course of fighting a battle against socialism during the middle years of
the decade. On the other hand, some of the arguments were not actually new
at all. Another debate on the feasibility of socialism had taken place
immediately following the First World War, and Hayek's mentor, Ludwig von
Mises, had contributed a key argument. This earlier controversy had taken
place in mostly German-language publications. When Hayek came to England
and encountered similar arguments in favor of planning being made by his
academic colleagues and in the press, he decided to educate them about the
earlier discussion. In 1935 he published the edited volume, Collectivist
Economic Planning: Critical Studies on the Possibilities of Socialism. The
book contained translations of articles by others, including von Mises's
seminal piece "Economic Calculation in the Socialist Commonwealth," as
well as introductory and concluding essays by Hayek. In the former Hayek
reviewed the earlier Continental debates on socialism; in his concluding
essay, titled "The Present State of the Debate," he identified and
assessed a number of more recent proposals, among them the idea of
reintroducing competition within a socialist state, dubbed
"pseudo-competition" by Hayek, which later came to be called "market
socialism." This drew a response from the socialist camp, the most
prominent being that of the Polish emigre economist Oskar Lange, whose
defense of market socialism in a journal article was later reprinted in a
book, On the Economic Theory of Socialism. Hayek would respond in turn to
Lange and to another proponent of socialism, H. D. Dickinson, in a book
review a few years later.

Hayek's three essays noted previously constitute the written record of his
early arguments against socialism. But the battle was also taking place in
the classrooms (and doubtless spilling over into the senior commons room,
as well) at the LSE. Beginning in the 1933-34 summer term (which ran from
late April through June) Hayek began offering a class entitled "Problems
of a Collectivist Economy." The socialist response was immediate: the next
year students could also enroll in a class titled "Economic Planning in
Theory and Practice," taught first by Hugh Dalton and in later years by
Evan Durbin. According to the LSE calendar, during the 1936-37 summer term
students could hear Hayek from 5 to 6 PM and Durbin from 6 to 7 PM each
Thursday night! This may have proved to be too much: the next year their
classes were placed in the same time slot on successive days, Durbin on
Wednesdays and Hayek on Thursdays.

By the time that World War II was beginning, then, Hayek had criticized,
in books, learned journals, and in the classroom, a variety of socialist
proposals put forth by his fellow economists. The Road to Serfdom is in
many respects a continuation of this work, but it is important to
recognize that it also goes beyond the academic debates. By the end of the
decade there were many other voices calling for the transformation,
sometimes radical, of society. A few held a corporativist view of the good
society that bordered on fascism; others sought a middle way; still others
were avowedly socialist-but one thing all agreed on, that scientific
planning was necessary if Britain was to survive.